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Note From Jeff Brown Today is the last day to access the replay of my biotech master class from last week. In it, I pulled the curtain back on what’s coming for the biotechnology industry. I also revealed the details of my No. 1 biotech stock to own right now. Based on my analysis, this stock could 10x nearly overnight once it releases news of a breakthrough in the industry. And this is just the beginning of our massive investment opportunity in the biotech space. As we have been discussing in these pages, this is a breakout year for the industry, and that is paving the way for the 2020s to be the decade of biotech. Fortunes will be made on the world’s best biotechnology companies in the years ahead. We’ll see regular investors make life-changing gains in this space. We’ll see new biotech-focused VC funds and hedge funds spring up like wildflowers to capitalize on this trend. And that’s why I finally decided to give a presentation dedicated to the biotech space. As tech investors, we must stay on top of this massive trend. For anyone who is interested but couldn’t attend last week, please take advantage of the last evening that our master class will be available. Just go right here for the full replay. |
Dear Reader,
Yesterday, we took a look at July’s strong employment numbers for the U.S. and the remarkable economic recovery that has happened in the last eight weeks or so.
We also saw that U.S. homeownership has spiked in the second quarter to levels we haven’t seen since the third quarter of 2008.
I’d like to continue this thread. Let’s look at what is happening in the homebuilding industry right now. It may seem counterintuitive, but the homebuilding industry is booming right now. One chart tells the whole story below.
The S&P Homebuilders ETF (XHB) is trading at all-time highs. The index plummeted almost 50% due to fear and uncertainty in March. But now the index has exploded higher, rising more than 110% from this year’s lows.
How is that possible? After all, it’s Armageddon out there right now, isn’t it?
Not even close…
While the lending markets did lock up in April and May, the flood gates have opened up in June and July.
With the riots and lawlessness happening in major cities across the U.S., families and individuals wanting to live in a safe environment have been fleeing to the suburbs.
And mortgage rates are at near 50-year lows. The average rate on a 30-year fixed mortgage has fallen to an incredible 2.98%.
For any readers out there who are renting, there has never been a better time to purchase a primary residence. At 2.98% or lower, it almost feels like free money.
At these levels, having a mortgage makes a lot of sense. Borrowing at 2.98% frees up capital to invest and generate much higher returns.
Likewise, consumers are purchasing homes with the expectation of spending a significant amount of time there. Having one or sometimes two rooms dedicated as a home office space has quickly become a necessity.
I’ve been making my rounds, speaking with friends and colleagues from all sorts of industries. The feedback is consistent.
Corporations and businesses are already planning on reduced office footprints. They are redesigning office spaces, experimenting with hybrid work weeks (only two or three days in the office and the rest from home), and exploring new ways to improve productivity in this new environment.
So why is there so much doom and gloom in the headlines?
What we’re really seeing right now is a “splintering” of the stock market.
Companies whose products and services are well-positioned for this new economic environment are absolutely booming. And those that aren’t are suffering badly. The next two years will be brutal for companies that don’t adapt quickly to this new environment.
Rest assured; my readers will be on the right side of market history. Our portfolio is explicitly designed to profit from this “new world order” taking shape right now.
Now let’s turn to our insights…
We are going to start today by talking about cryptography. This is the technique used to “encrypt” our data and communications to keep them secure online.
Essentially, data is converted into a cipher or code that only authorized users with the “key” to decrypt it can access. Cryptography sounds like an arcane subject, but it is immensely important to all of us.
Though we don’t often think about it, cryptography is all around us. It is used to encrypt our work emails so that they can’t be intercepted and read by third parties.
Cryptography is also used to encrypt the sensitive files that we store in the cloud. And it is used to encrypt our data every time we make a purchase online.
Whenever we see the little padlock symbol next to the web address, that indicates that our connection to the site is encrypted and secure. Outside parties won’t be able to intercept communications between our browser and the site. That’s cryptography in action.
If we don’t see this lock on a site, we should not make an online purchase from it.
But there’s a problem…
Due to the rise of quantum computing, our current encryption standards are about to become obsolete.
Last September, Google achieved quantum supremacy – the point at which a quantum computer can outperform our most powerful classical supercomputer.
Google demonstrated this when its 53-qubit quantum computer completed a calculation in 200 seconds that would have taken what was then the world’s most powerful supercomputer, Summit, 10,000 years to complete.
At that level of speed and power, it became clear that quantum computers were no more than 24 months away from being able to crack our standard 256-bit encryption.
That encryption is used by governments, militaries, corporations, blockchains, and e-commerce websites. Once quantum computing can crack 256-bit encryption, everything is compromised.
Once that happens, our encryption could theoretically be cracked by any company, government, intelligence agency, cybercriminal organization, or even a very wealthy person with access to quantum computing.
Fortunately, the industry has been expecting and planning for this eventuality. Back in 2016, the National Institute of Standards and Technology (NIST) launched a competition for the development of quantum-proof cryptography. The target completion date was 2022.
Sixty-nine different cybersecurity teams entered the competition. NIST went through each team’s proposed system and has now narrowed the field down to 15 teams.
That means the race for quantum-proof cryptography is heating up.
What’s interesting here is that several of these proposed systems use “lattice-based cryptography.” This system uses a massive grid that has billions of points across thousands of dimensions. It’s far more complex than our public-key cryptography, which simply uses standard mathematics to encrypt data and messages.
With lattice-based systems, there are a nearly infinite number of possibilities to decrypt any piece of data. Unless the specific route is known, there is no way to crack the code, even with a quantum computer.
And what is so promising about lattice-based systems is that the approach will work in devices and systems that have limited amounts of memory. That means lattice-based cryptography can be applied to smartphones, tablets, and other mobile devices like industrial sensors.
So this structure can be widely used – it’s not just limited to larger systems. That’s great news for the budding Internet of Things (IoT).
And here’s what has me excited about all this…
The entire world’s cryptographic systems will need to be upgraded very quickly. That will require massive amounts of spending on cybersecurity. As a result, the best cybersecurity firms are staring at a windfall to the tune of hundreds of billions of dollars.
This will be the most meaningful technological upgrade in the cybersecurity industry in decades.
I’ll know which cybersecurity firms are best positioned for this massive shift within the next couple of years. I’ll be watching closely where the key teams working on the new standards for quantum-proof cryptography go.
Some will establish new cybersecurity firms, and others will join established tech companies looking to be well-positioned for this massive shift.
And that means the investment opportunities for us will be incredible. Readers of my Near Future Report and Exponential Tech Investor services will be the first to hear about them.
Next, we have to talk about what’s going on with TikTok. The mainstream media appears to be clueless about what’s really happening.
I see stories speculating that Microsoft is going to buy TikTok, but those stories don’t specify that the entire business isn’t for sale. It’s just the U.S. operations that are up for grabs.
To bring new readers up to speed, TikTok is a social media platform owned by a China-based company with close ties to the Communist Party – ByteDance. The platform is especially attractive to teenagers and young adults because it hosts short self-produced videos of people doing funny, skilled, or stupid things.
But it was revealed that TikTok collects all kinds of sensitive usage and location data from our phones, and ByteDance was fined for violating child privacy laws in the United States last year.
TikTok did not stop its illegal data collection practices, so President Trump issued an executive order banning the app in the United States.
And that led to Microsoft’s efforts to buy TikTok’s U.S. operations. It has until September 15 to get the deal done or the ban will take effect shortly thereafter.
TikTok’s entire business is worth about $50 billion. We don’t know what the U.S. operations are worth, but it is probably just north of $10 billion. That’s nothing for Microsoft, which is sitting on $136.5 billion in cash and cash equivalents.
But this would be a dumb move for Microsoft. Acquiring TikTok would open the door to all kinds of regulatory scrutiny, which Microsoft has been largely immune to up to this point. Even former Microsoft founder, CEO, and chairman Bill Gates said that TikTok was a “poisoned chalice.”
More interesting to me is that Twitter has stepped up and expressed interest in TikTok’s U.S. operations. That move would make a lot more sense because Twitter is a social medial platform and already deals with the sensitive regulatory issues surrounding consumer-based social media.
Plus, the addition of TikTok would expose Twitter to a younger demographic that it doesn’t have right now. In the social media space, TikTok and Twitter would be complementary platforms with little to no crossover.
The only question is whether Twitter can afford it. Twitter would have to either raise a bunch of debt to acquire the U.S. operations or make a cash and equity offer.
On the other hand, Microsoft is known for overpaying for all of its acquisitions – I call it “dumb money.” So I can only hope that Gates talks some sense into Microsoft’s board and Twitter can get the deal done with ByteDance.
Last month, we talked about how SoftBank’s horrendous investment decisions within its Vision Fund are forcing the company to sell ARM Holdings, which is one of its few good investments. This comes just as the industry is shifting in ARM’s direction.
In June, we talked about how the world’s new most powerful supercomputer, Fugaku, is using an ARM-based semiconductor architecture. And last month, Apple announced that it is dumping Intel’s x86 semiconductor architecture in favor of an ARM-based design for its desktops and laptops.
Now NVIDIA is in advanced talks with SoftBank to buy ARM Holdings. This would be a masterstroke by NVIDIA. And it would put NVIDIA in a position to dominate the industry for decades to come.
ARM is known for its high-performance, low-power semiconductors, which are perfect for small mobile devices. This is an area of the industry that NVIDIA does not have access to right now.
That’s why this is such a big deal. If NVIDIA is successful in acquiring ARM, it will suddenly be a major player across the entire semiconductor industry.
And NVIDIA is rumored to be angling for a purchase price of just over $32 billion. That’s just slightly higher than the $31.4 billion that SoftBank paid for ARM back in 2016.
So SoftBank will likely eke out a small nominal profit on its investment in ARM. But NVIDIA is going to get a much better deal.
SoftBank bought ARM at an EV (enterprise value)/sales multiple of 20.46. At the time, Softbank ridiculously overpaid. It has taken five years for the valuation of ARM to finally catch up to its original acquisition price.
Today, ARM’s annual sales are estimated to be $1.9 billion. At a $32 billion acquisition price, NVIDIA would get the company at an EV/sales multiple of 16.84.
It’s still expensive, but NVIDIA would know how to manage the asset.
After all, SoftBank is a holding company with expertise in wireless networks and internet technology. NVIDIA is the world’s most valuable semiconductor company. A lot more valuable than even Intel…
And speaking of Intel, where is it? The company should be in the running for ARM.
We’ve documented Intel’s troubles in these pages recently. It completely missed the shift to mobile computing. Acquiring ARM would go a long way toward fixing that.
In fact, this is the one acquisition that I think would make a lot of sense for Intel. Intel wouldn’t have to worry about screwing up any manufacturing and design efforts because ARM licenses out its semiconductor architectures.
Plus, Intel will be in even bigger trouble if NVIDIA does make the acquisition.
We’re experiencing a major inflection point in the semiconductor industry.
Intel continues to flail even as we’re seeing the rise of the graphics processing units (GPUs) from AMD and NVIDIA. We’re also witnessing a large-scale consolidation in the analog semiconductor industry and the birth of semiconductor companies focused on artificial intelligence and machine learning applications.
With 5G semiconductors and new memory technology added to the mix… it hasn’t been this exciting for decades.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
